Impacts of migration on UK native employment

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Impacts of migration on UK nativeemployment: An analytical review of

the evidence

Ciaran Devlin and Olivia Bolt, Department for Business, Innovation and Skills

Dhiren Patel, David Harding and Ishtiaq Hussain, Home Ofce

Occasional Paper 109March 2014


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Foreword

The impacts of migration on the UK are complex and wide-ranging, affecting

economic, social and cultural aspects of life in the UK. This evidence review does not

cover any of the social or cultural aspects. It focuses narrowly on one of the potential

economic effects - the impact on the employment of existing UK residents.

In advising government on the likely impact of changes to migration policy on the

employment outcomes of UK workers, government analysts must take a view, albeit

one that reflects the spectrum of possible impacts. This paper presents a

comprehensive overview of the current evidence base, together with the

conclusions reached by government analysts on the basis of that evidence. The

conclusions will inform future assessments of the impacts of migration policy on the

employment outcomes of UK workers.

Assessing the impact of migration on the employment outcomes of UK workers is a

hugely challenging analytical issue. It is difficult to isolate the effects of migration

from the other factors that simultaneously affect labour market outcomes. Even if

one is confident that the effect of migration has been isolated, it is hard to be sure

that what is measured is a causal estimate of the impact of migration on labour

market outcomes, and not the reverse. Moreover, assessing aggregate national

impacts may mask impacts that vary markedly across localities.

Therefore, limitations in data and research methods, together with the likelihood

that the effects of migration vary across time and place mean that studies differ in

their conclusions. This increases the challenge of reaching a consensus view basedon the evidence; there will generally be conflicting opinions.

Despite the challenges involved, we believe that our conclusions are based on a

pragmatic assessment of the evidence, and that the analysis sheds some light on the

reasons why there has been a range of findings in the literature. We would value

feedback from the academic and researcher community on this analysis and

encourage further research in this area. Indeed, further research and new data are

likely to augment the findings of this report over time.

Amanda Rowlatt

Chief Analyst

Department for Business,

Innovation and Skills

Sam Brand

Chief Economist

Home Office


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Contents

Executive Summary ........................................................................................................ 4

1. Introduction ............................................................................................................... 8

Background ........................................................................................................... 8Aims ...................................................................................................................... 8

Structure ............................................................................................................... 9

Process ................................................................................................................ 10

Acknowledgements ............................................................................................ 10

2. Theoretical labour market impacts of migration ..................................................... 11

Long-term impacts.............................................................................................. 12

Short-term impacts............................................................................................. 14

Factors affecting the duration of short-term impacts ....................................... 14

3. Migration policy and trends ..................................................................................... 16

Migration policyhistorical context .................................................................. 16

Migration trends ................................................................................................. 19

4. Outcomes in the UK labour market for natives and migrants ................................. 25

Economic context ............................................................................................... 25

Population trends ............................................................................................... 26

Employment ....................................................................................................... 28

Inactivity ............................................................................................................. 33

Unemployment ................................................................................................... 34

5. Methodological issues ........................................................................................ 35

Data .................................................................................................................... 35

Migrant definitions ............................................................................................. 37

Choice of econometric approach ....................................................................... 39

Choice of dependent variable ............................................................................ 40

6. Review of the evidence ............................................................................................ 41

Literature review ................................................................................................ 41

Further analysis of the Migration Advisory Committee (2012) ......................... 47

Future research considerations .......................................................................... 49

7. Conclusions .............................................................................................................. 51

Annex 1Regression analysis ..................................................................................... 54

Annex 2Literature review ......................................................................................... 57

Annex 3 - Data sources ................................................................................................ 67

Annex 4 - Methodological issues ................................................................................. 71References ................................................................................................................... 73


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Executive Summary

This report reviews the evidence around the impacts of migration on the

employment of existing UK native workers. The purpose of this review, carried out

by government analysts, has been to consider comprehensively the evidence in thisarea and to reconcile the wide-ranging conclusions from the economic literature, in

order to set out the agreed cross-government view. Importantly, it is recognised that

the impacts of migration on the labour market depend on a range of factors that

vary over time, and therefore the impact of migration on the labour market cannot

be condensed to a one size fits all answer.

It is difficult to predict the impacts of future migration on native employment with

any great degree of certainty. However, government analysts nonetheless must

make an informed judgement based on existing evidence in order to provide robust

advice on government policy. To this end, the conclusions below summarise our viewof the evidence to date, which we will employ in making that judgement in the

future, according to the economic and wider context.

Overall, our assessment is that there is relatively little evidence that

migration has caused statistically significant displacement of UK natives from

the labour market in periods when the economy has been strong. However,

in line with some recent studies, there is evidence for some labour market

displacement in recent years when the economy was in recession.

Displacement effects are also more likely to be identified in periods when net

migration volumes are high, rather than when volumes are lowso analyses

that focus on data prior to the 2000s are less likely to find any impacts. In

addition, where displacement effects are observed, these tend to be

concentrated on low skilled natives.

This suggests that the labour market adjusts to increased net migration when

economic conditions are good. But during a recession, and when net

migration volumes are high as in recent years, it appears that the labour

market adjusts at a slower rate and some short-term impacts are observed.

To date there has been little evidence in the literature of a statistically

significant impact from EU migration on native employment outcomes,although significant EU migration is still a relatively recent phenomenon and

this does not imply that impacts do not occur in some circumstances.

The evidence also suggests that where there has been a displacement effect

from a particular cohort of migrants, this dissipates over timethat is, any

displacement impacts from one set of new arrivals gradually decline as the

labour market adjusts, as predicted by economic theory.

The following key areas of interest are covered in this report.


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Theoretical labour market impacts of migration

Mainstream economic theory does not predict long-term negative impacts from

positive net migration on average native labour market outcomesover a period of

time the labour market is expected to adjust to increased labour supply and return

to equilibrium levels of employment and wages. However, this requires anadjustment in the short term, the length of which is an empirical question. This

adjustment may be achieved through lower wages, reduction in hours worked,

and/or some increase in involuntary unemployment until the labour market has fully

adjusted. Dynamic benefits (innovation, knowledge transfer, productivity gains, etc.)

may mean that migration has positive impacts on native labour market outcomes,

but these are difficult to measure.

Short-term impacts are likely to vary both in magnitudeand in duration depending

on a number of factors including: economic conditions; labour market institutions

and policies; and how the skill mix of migrants compares with that of the residentpopulation. Whilst the magnitude and duration of these short-term effects is a

matter for empirical study, the data are often unable to address reliably these

questions. Theory also predicts distributional impactsmigration will have positive

impacts on some groups in the resident population, but negative impacts on others.

Migration trends

Net migration into the UK has been historically high in recent decades. Net migration

was negative from the late 1960s to the early 1980s, when it became positive but

low and stable until the late 1990s, when migration policy for non-EEA1

nationalsbecame less restrictive. Net migration increased further in 2004 following the

accession of Eastern European countries (A8) to the EU. Since 2004 net migration has

remained high, but has recently fallen back partially as a result of changes to

migration policy.

Labour market outcomes for migrants and natives

The large increase in net migration, which began in the late 1990s, took place during

a strong period of sustained economic growth. This came to an end with the 2008

recession. In our descriptive labour market analysis we examine labour marketoutcomes for UK nationals born in the UK, UK nationals born abroad,

2EEA migrants

and non-EEA migrants. Over the early part of the period of sustained positive net

migration, labour market outcomes improved for UK nationals born in the UK

employment rates increased steadily up to 2005 and then remained at a relatively

high level until the 2008 recession. Employment rates for UK nationals born in the

UK are greater than for non-EEA migrants and for UK nationals born abroad, but in

1EEA = European Economic Area. The EEA includes the Member States of the EU, plus Iceland,

Liechtenstein and Norway. Switzerland is not in the EEA but is counted in this group for our research,

as Swiss nationals have free movement rights within the EU. 2UK nationals born abroadis a diverse group made up of UK nationals born abroad with British

parents and/or grandparents, as well as settled migrants who have obtained British citizenship.


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recent years have been slightly lower than for EEA migrants, as the composition of

this group changed following the 2004 enlargement of the EU (the A8 accession).

Inactivity rates for non-EEA and EEA migrants have been falling for almost 20 years.

Such observations show that there are differing impacts across migrant categories.

Data and methodological issues

Accurate estimation of the impacts of migration depends crucially on both the

methodological approach employed and the availability of robust and timely data.

Unfortunately data on migration have certain imperfections, which render

conclusions of studies on the impact of migration open to debate. There are a

number of alternative sources of data that can be used to assess the impact of net

migration on the labour market; each with particular strengths and weaknesses. Our

assessment is that the Labour Force Survey (LFS) is currently the most complete data

source for measuring the impacts of migration on the UK labour market. This is

because it allows analysis to include a consideration of individual migrantcharacteristics, and to examine net changes in migrant stocks rather than gross

flows. However, studies that use other data sources may also provide a useful

reference.

In assessing the impact of migration on the labour market, researchers attempt to

indirectly construct a counterfactual of What would the labour market outcomes for

natives have been in the absence of net migration?. This amounts to splitting the UK

labour market into groups, each of which has experienced different degrees of net

migration. By comparing how labour market outcomes across these groups vary with

changes in net migration in these groups, and controlling for other factors, it ispossible to estimate the labour market impacts of migration.

Review of the literature

This report considers a broad range of literature examining the impact of migration

on the UK labour market, as well as the most relevant international studies. Until

recently, the bulk of the UK literature did not identify statistically significant impacts

of migration on the employment rates of natives (for example, Dustmann et al.,

2005; Lemos and Portes, 2008). The Migration Advisory Committee (2012) study

provides a more recent example suggesting a statistically significant displacementeffect, particularly linked to non-EU migration. But similarly recent research by

Lucchino et al. (2012) failed to identify any statistically significant impacts of net

migration on claimant count rates. Differences in findings between studies can be

partly explained by factors such as the time period studied and the data or

definitions used.

It seems likely that the magnitude and duration of short-term impacts of migration

on the labour market vary according to context and economic conditions (Peri, 2010;

Migration Advisory Committee, 2012). Further testing of the Migration Advisory

Committee (2012) analysis shows that the findings were particularly driven by datafrom 2009 and 2010, when there was a downturn in the labour market. However, it


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was not possible to test further for impacts from other significant labour market

changes, such as the labour supply effects of the 2004 EU accession.

The literature consistently suggests that any displacement effect is likely to be

greatest for the low skilledstudies that distinguish between impacts on high-skilled

and low-skilled workers more frequently find displacement effects on low-skilled

workers, sometimes when there is no apparent displacement effect in aggregate.


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1. Introduction

Background

In recent decades, migration has become an increasingly important phenomenonacross the developed world, including in the UK. Historically high levels of net

migration have resulted in substantial interest from academics and policy makers

alike in robust studies that statistically examine the impact of net migration on

outcomes in the labour market for existing citizens. However, this is a challenging

area of analysis, with studies using a variety of methodologies and data sources to

come to a range of conclusions about the direction and scale of the impact of

migration on UK citizens in the labour market.

Until recently, much of the economics literature, both in the UK and other countries,

suggested thatto quote one example now a decade oldthe impact ofimmigrants on wages and employment in local labour markets is, if at all, modest

(Dustmann et al., 2003, p 16). In 2008 the Government response to a House of Lords

Committee on Economic Affairs3stated that Government and independent research

continues to find no significant evidence of negative employment effects from

immigration(House of Lords, 2008a).

More recently, the Government commissioned the independent Migration Advisory

Committee (MAC) to look again at the impacts of migration on the UK economy. The

MACs January 2012 report, entitledAnalysis of the Impacts of Migration,presented

a comprehensive overview of the evidence on the impacts of migration including

economic, public service, fiscal, social and labour market impacts. The report

included valuable new research on the impact of immigration on employment rates

of UK natives, including a tentative finding that there was evidence thata rise in the

stock of non-EU migrants is associated with a[statistically significant] reduction in

native employment ratesover the period 19952010, and particularly in periods

when the output gap is negative(Migration Advisory Committee, 2012, p 121).

Aims

The evidence on the topic of labour market impacts of migration has been

controversial and contested. One recent example is the MAC analysis (ibid.), whilst

another example is the findings of Lucchino et al.(2012), published by the National

Institute for Economic and Social Research, which did not identify any impact of net

migration on the claimant count rate, even during the recession.

The purpose of this paper is to review the existing evidence on labour market

displacement of net migration on UK citizens in order to provide a more coherent

understanding of the different findings in this research area. Economists from the

Home Office (HO), the Department for Business, Innovation and Skills (BIS) and the
http://www.ukba.homeoffice.gov.uk/sitecontent/documents/aboutus/workingwithus/mac/27-analysis-migration/01-analysis-report/analysis-of-the-impacts?view=Binaryhttp://www.ukba.homeoffice.gov.uk/sitecontent/documents/aboutus/workingwithus/mac/27-analysis-migration/01-analysis-report/analysis-of-the-impacts?view=Binaryhttp://www.ukba.homeoffice.gov.uk/sitecontent/documents/aboutus/workingwithus/mac/27-analysis-migration/01-analysis-report/analysis-of-the-impacts?view=Binaryhttp://www.ukba.homeoffice.gov.uk/sitecontent/documents/aboutus/workingwithus/mac/27-analysis-migration/01-analysis-report/analysis-of-the-impacts?view=Binary


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Department for Work and Pensions (DWP) have worked together to understand and

interpret the existing research.

The purpose and focus of this review means that there are many impacts of

migration that are not considered here. This review is not an assessment of the full

economic and social impacts of net migration, either in the short term or the long

term. It focuses specifically on an examination of impacts of migration on

employment outcomes, and so does not include an assessment of other possible

labour market impacts of net migration, for example on wages, hours, and

productivity. Neither does it attempt to address issues of fiscal impact. It considers

the impacts of migration at an aggregate national level, though does not consider

the localised impacts of migration, which may vary depending on the nature of the

local job market and other factors.

Structure

The review was conducted in several discrete strands, as outlined in Box 1.1.

Box 1.1: Project work strands

Economic theory- we examined the labour market impacts of

migration, as predicted by economic theory.

Migration policy and volumes - we examined the policy context in the

UK over the last couple of decades by reviewing changes in migration

policy and the volumes of migratory flows.

Outcomes in the UK labour market for natives and migrants- we

considered the trends in labour market outcomes for natives and

migrants over the same period.

Methodological and data issues- we considered the methodological

and data issues that researchers face in this area.

Literature review and further data analysis - we conducted a

literature review of the most relevant research in this area. With the

support of the MAC we also did some further tests on the data set

used.

Conclusionsbased on the balance of the evidence reviewed, we

drew conclusions around the impacts of migration on UK native

employment rates.


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Process

The review was carried out by economists from BIS and the Home Office. This work

was overseen by a steering group involving senior analysts from these departments,

with the Department for Work and Pensions (DWP), HM Treasury (HMT) and the

Cabinet Office also represented. The review was presented to and discussed by Chief

Economists from BIS, DWP and the Home Office, as well as senior analysts from HMT

in September 2012. The Chair of the independent MAC also attended this meeting.

The conclusions outlined in this report were discussed and agreed at that meeting.

Acknowledgements

The authors would like to thank the following for their comments and contributions

to this work: Sam Brand; Jacquie Cooper; Rhian Eveleigh; Omar Fofanah; TrevorHuddleston; Ken Low; MAC Secretariat; Jacob MacDonald; Oliver Popescu; Jonathan

Roberts; Alex Shirvani; Jon Simmons; and Bill Wells.

We would also like to thank those academics who commented on a draft version of

this report.


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2. Theoretical labour market impacts of migration

Summary

Economic theory predicts differing short-term and long-term impacts ofmigration.

Mainstream economic theory does not predict long-term negative impacts on

native labour market outcomes under certain assumptions and suggests that the

dynamic benefits may improve labour market outcomes for natives in the long

term.

Theory also predicts a range of short-term impacts, which are likely to vary in

magnitude depending on a number of factors, including economic conditions,

labour market institutions and policies, and how the skill mix of migrants

compares with that of the resident population.

The length of time it takes for the labour market to adjust (to move from theshort term to the long term as described above) is an empirical question.

There are distributional impactstheory predicts that migration will have

positive impacts on some groups in the resident population, but negative impacts

on other groups.

The UK may be better placed to adapt to immigrant inflows than some other

countries due to the flexibility of the UK labour market.

Conventional economic theory suggests that the impact of migration on the labour

market is likely to depend on a number of factors: the skills mix of the immigrant

inflows compared with that of the native population; and the characteristics of thehost countryincluding the flexibility of both labour and capital and the ability of

the labour and product markets to adjust in the short and longer term.

In this chapter, we focus on immigration that leads to an increase in labour supply. It

is important to note, however, that not all migration is directly (or indirectly) work-

related. For example, an increase in student or family migration is likely to have a

smaller impact on labour supply than an equivalent increase in work-related

immigration (although some student and family migration will contribute to the

labour market under current Immigration Rules).

Immigrant inflows affect the skills composition of the labour market if the skills

composition of migrants differs, on average, from that of the resident population.

This leads to disequilibrium in the labour market for different labour types at existing

levels of wages, employment and output.4

Economic theory defines an immigration surplus, resulting from the inflow of labour,

as the gain in national income accruing to natives as a result of immigration

(Borjas, 2006, p 12). When (work-related) immigration occurs, altering the skills

composition of the labour market, economic theory predicts that national income

4This is unless the supply of migrants changes the skills composition such that it matches the skills

composition demanded.


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will increase. This rise in national income is distributed between immigrants (who

receive wages) and somenatives (who receive higher wages and additional income

from factors of production, including physical and human capital). Natives may also

benefit from a wider variety of goods and services and lower goods prices. Clearly

the theory is predicated on the immigrants being employed and the absence of

bottlenecks that might inhibit a smooth market adjustment.

This presumption of an immigration surplus, however, does not mean that all

individuals within the host country are equally affected. Instead, economic theory

suggests that natives who have skills that are substitutes to the skill composition of

the incoming immigrant population may be negatively impacted, at least for a period

of time, while those with skills that are complements to those of the immigrant

population will tend to be positively affected. While immigration implies a growth in

the national income of a country, in practice, as the House of Lords report in 2008

concluded, it is also necessary to consider the effects on national income (gross

domestic productGDP)per capita, as this is a more appropriate measure of livingstandards of the native population than the overall level of GDP. The Migration

Advisory Committee (MAC) report (2012) took this one step further and suggested

that when assessing the benefits from immigration, it was necessary to look at the

benefits to the existing resident population, that is, to exclude those accrued by the

migrants themselves.

It is also important to distinguish between the short-term and long-term effects. To

restore equilibrium in the labour market, short-term changes in the labour supply

will lead to changes in employment and wages for different skill types. In the long

term, the theory suggests that the economy will adjust through changes in capitalstock, technologies and industry structures, resulting in more vacancies being

created. As a result, economic theory implies that in the long term there would be

no permanent disequilibrium, with respect to the impact from immigration on

employment or wages. We consider the theoretical arguments for these impacts in

more detail below.

Long-term impacts

In the long term, standard economic theory predicts that capital and technology will

adjust to immigration and changes in the economic situation, and that labour is fullymobile. In practice, the assumption of perfectly competitive markets with perfectly

mobile labour and capital may not hold, and this model therefore may not accurately

describe what happens in all cases. Empirical analysis is used to ascertain whether

the evidence supports the theoretical model.

Economic theory suggests that in the longer term, migration may have no effect on

employment and wages, as changes in the volume and composition of labour supply

will over time be absorbed by changes in the structure of the economy, for example,


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the output mix5between industries. If markets are competitive and labour is

perfectly mobile across industries, then changes in relative factor supplies6(skilled

and unskilled labour, capital) will not have a long-term effect on relative wages.

Instead, adjustment happens through changes in the output mix and relative scale

between industries. For example, if there is a large increase in a countrys supply of

skilled labour, skilled wages are likely to fall and the economy will become relatively

more competitive in the production of goods that are skilled-labour intensive.

Production of such goods will expand, raising the demand for skilled labour and

lifting the wage back towards its equilibrium level. The shift away from

manufacturing and towards services in the UK is an example of how an economy

might adapt to the changing skills composition of the population. Of course, there

may be many other possible explanations for this shift. It is also true that these

economic adjustments can take a considerable length of time and come with other

social consequences.

In addition, the economy may adjust through changes in technology, resulting in thedevelopment and utilisation of technology that makes more use of the available

labour supply in the economy. For example, employers may respond to an increase

in low-skilled labour supply by switching from a capital-intensive production model

to a more labour-intensive approach that makes less use of mechanised production

methods.7Immigration can act to support or inhibit such adjustments. This

argument was highlighted in evidence provided to the House of Lords Committee

[The wine industry] is highly labour intensive in California and highly mechanised in

Australia, the reason being that it is very easy to get unskilled workers in California

but not in Australia(House of Lords, 2008b, p 117b).

Immigrationparticularly of skilled migrantsmay lead to benefits through a

dynamic impact on growth, technology and innovation, for example, by introducing

additional knowledge and innovation, resulting in increased average wages and

employment in the long term. However, the ready availability of migrant labour may

in some cases also reduce incentives to develop the productivity of existing workers,

and the dynamic benefits while often discussed in the literature are difficult to

measure accurately.

It is also argued that immigration may increase labour market efficiency. Borjas

(2001) argues that immigration greases the wheels of the labor[sic] marketasimmigrants may be more responsive and mobile than the native population and

therefore more likely to move to areas with the best economic opportunities. This

5The output mixrefers to the combination of output attainable across industries given the available

resources and technologies.6Factor suppliesrefer to the availability of scarce resources in an economy at different factor prices.

These resources are labour, capital and land. In this context, changes in relative factor supplies refer

to the increase in skilled or unskilled labour as result of immigration, relative to the amount of capital

available.7This could be explained in two possible ways: industries may choose to adopt different production

technologies in response to changes in labour supply (demand side); or profit-maximising innovatorsmay choose to develop new production technologies that are complementary to the new immigrant

inflows (supply side).


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means that they may self-select into areas where they are most likely to find

employment. Greater flexibility through a relative lack of ties or social investment

may also provide immigrant labour with a competitive advantage, although

conversely the attraction of migrants to existing diaspora may also inhibit their

flexibility and responsiveness.

Short-term impacts

Most analyses of the short-term impacts of migration are not well placed to assess

effects across markets and over time, focusing instead on static models, and thus

ignoring interactions between different markets. These models suggest that there

may be negative short-term impacts of migration on labour market outcomes for

natives.

In the short term, it is typically assumed that labour and capital are not fully

adjustable. Immigration is therefore modelled as an increase in labour supply. Using

a simple supply and demand model, immigration will tend to lower the wages of

workers who are considered to be substitutesto the immigrants (that is, essentially

those who compete for the same jobs) and increase wages for those native workers

whose skills complement the skills of immigrants. Immigration will also raise the

profits of those who own capital and employers who benefit from the increased

supply of labour. As noted above, under these theoretical assumptions the economy

is said to benefit from an immigration surplus, which accrues to natives. This

immigration surplus is positive as long as the skills composition of the immigrant

flow differs from that of native workers (Borjas, 1995, pp 322). However, it is clear

that there are distributional effects with some natives benefiting (complementaryworkers, capital owners, employers), and others (substitutes) losing out.

In addition, wages tend to be stickyin the short term, meaning that as labour

supply increases, wages may not fall in nominal terms as predicted by economic

theory. This could mean that employment does not immediately increase by as much

as expected, resulting in an increase in involuntary unemploymentand for some

individuals, this may mean an extended spell of unemployment. Moreover, at the

bottom of the wage distribution the national minimum wage acts as a floor below

which wages cannot fall.8Therefore, some employment effects may be expected in

the short term. In the longer term, according to this theory, the increase in laboursupply should lead to increases in aggregate demand through increases in demand

for goods and services, potentially resulting in increases in demand for both

unskilled and skilled labour.

Factors affecting the duration of short-term impacts

The duration and severity of the adjustment to a new stable equilibrium will be

affected by the flexibility and capacity of the economy to expand and adjust output.

The state of the economy is also likely to be a key factor affecting the ability of the

8Assuming full compliance with the national minimum wage.


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economy to adjust to changes in labour supply. When there is little slack in the

labour market and demand is strong, employers may readily recruit in response to

an increase in available labour supply, using the available labour to expand

production. In weaker economic conditions, employers would only be expected to

increase employment over time in response to an increased labour supply as wages

fall. However, weak demand may mean the employer is less likely to seek to expand

production immediately.

Over the long term, flexible labour markets are expected to adapt to changes in the

economy and accommodate the varying preferences and circumstances of people

and businesses in the market. This flexibility relates to firms ability to make changes

to their workforce in terms of the number of workers they employ, the hours worked

and the wages paid to their workers, and depends significantly on the level of

employment regulations. The UK labour market remains highly ranked in terms of its

flexibility and efficiency (World Economic Forum, 2012), with relatively low levels of

employment protection legislation (OECD, 2013), more similar to the USA andCanada, than to most EU states. The flexibility of the UK labour market implies that

the UK might be more able than other countries to adapt swiftly to labour supply

shocks that result from immigration.9However, the same lower level of regulation

could allow migrants to undercut native workers by agreeing to work for a lower

wage.

As suggested by the above discussion, there are a large number of complexities that

need to be taken into account when considering the effects of migration on the

labour market. The overall impacts may depend on factors such as: the wider

dynamic impacts of migrants; the state of the economy; and labour marketstructures, including the benefits, training and skills systems. Whilst economic theory

clearly differentiates between short-term and long-term impacts, it is not clear for

how long short-term impacts may be expected to persist, and whether they are

likely to be significant in magnitude. In addition, as described above, the speed of

the labour markets adjustment may vary over time according to economic context

and other factors. Therefore the persistence and magnitude of short-term impacts is

a matter for empirical study. The literature review in Chapter 6 considers the

empirical evidence in recent decades.

9For example, Angrist and Kugler (2003) and Longhi et al. (2011) find that the effect of immigration

on a host country labour market may vary depending on the labour market institutions.


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3. Migration policy and trends

Summary

Migration policy for non-EEA10

nationals became less restrictive in the late 1990s.

Net migration was negative from the late 1960s to the early 1980s, then became

positive but low and stable until levels rose sharply from 1998, and increased

further in 2004 due to the accession of eight Eastern European countries (A811

)

to the EU.

Net migration remained high for most of the post-2004 period, but has started to

fall back since 2010 as a result of the policies introduced by the Coalition

Government.

Other factors affecting trends include the introduction of a Points-Based System

(PBS) in 2008, and the onset of economic recession in the same year.

Being a Member State of the EU, there are no restrictions on EEA nationals

working in the UK.

The UK was one of three EU countries not to impose restrictions on labour

market access for nationals of the A8 countries in 2004. Restrictions on migrants

from the A212

countries were implemented in 2007, but were lifted from 1

January 2014.

Migration policy historical context

European Economic Area context

Nationals of all member countries of the EEA have the right to live and work in any of

the Member States of the EU. Therefore as a member of the EU the UK cannot

restrict EEA nationals from coming to the UK for employment reasons. However,

when a country first becomes a member of the EU, other Member States can impose

restrictions via a transition period for up to seven years.

Following the enlargement of the EU in May 2004, labour immigrants from the new

EU Member States (known as the accession or A8 countries) were allowedimmediate access to the UK labour market. The UK was only one of three countries

(along with Ireland and Sweden) that did not impose a transition period for migrants

from the A8 countries. This is in contrast to the labour market access restrictions

placed in 2007 upon migrants from the more recent accession (A2) countries. These

restrictions on A2 nationals came to an end from 1 January 2014.

10EEA = European Economic Area. The EEA Includes Member States of the EU, plus Iceland,


as Swiss nationals have free movement rights within the EU. 11

A8 countries are the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia andSlovenia.12

A2 countries are Bulgaria and Romania.


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Non-European Economic Area context

In the early 1990s flows of non-EEA workers were managed by the Work Permit

System (WPS).13

However, in the late 1990s and early 2000s, UK migration policy

became less restrictive for non-EEA migrants in a variety of ways. The various

changes introduced resulted in a significant increase in non-EEA migration. In the

late 2000s the rollout of the PBS changed the rules for non-EEA migration again,

introducing a transparent and objective system to facilitate the flow of high-skilled

and skilled workers.14

Following the formation of the Coalition Government in 2010, the immigration

system was revised again in order to reduce net migration, ensuring that migrants to

the UK are the brightest and the bestand to reduce the possibility of abuse in the

system. A brief summary of the immigration system, as it applies to non-EEA

nationals, is given below in Table 3.1.

Table 3.1: Historical migration policy changes for non-European Economic Area

nationals

Route Type of immigration Key changes (since 2010)

Tier 1 Work (high-value migrants)

Investors, entrepreneurs and exceptionally

talented people can apply to enter or stay in

the UK without a job offer if they meet the

relevant criteria.

Closure of Tier 1 General.

Closure of Tier 1 Post-Study Work

Route (PSWR) for most graduates,

replaced by more selective

arrangements for switching into Tier

2, a Tier 1 Graduate Entrepreneur

route and a Tier 4 Doctorate

Extension Scheme for successful PhD

students.

Introduction of accelerated

settlement for Investors and

Entrepreneurs, and a new route for

Exceptional Talent.

Tier 2 Work (skilled workers)

Migrants will need to have been offered a

skilled job in the UK, with a prospective

employer willing to sponsor them.

Introduced an annual limit of 20,700

for Tier 2 General (but no limit on

intra-company transfers).

Cooling off period after leave expires

for all Tier 2 migrants except the

13 Work permits were issued to employers as permission to employ nominated non-EEA workers in

the UK.

14Policy and legislative changes affecting migration to the UK: Timeline,available at:

https://www.gov.uk/government/publications/user-guide-to-home-office-immigration-statistics--9
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/190587/user-guide-policy-changes.xlshttps://www.gov.uk/government/publications/user-guide-to-home-office-immigration-statistics--9https://www.gov.uk/government/publications/user-guide-to-home-office-immigration-statistics--9https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/190587/user-guide-policy-changes.xls


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highest earners.

Removed Resident Labour Market

Test15

for jobs paying in excess of

71,000.

Minimum required salary for

information communicationstechnology (ICT) workers, which

varies depending on length of leave

to remain.

Minimum skills level increased from

NQF 3 to NQF 6.16

Tier 3 Work (low skilled)

Intended to cater for limited numbers of low-

skilled workers in particular sectors.

Suspended (as it has been since the

introduction of the PBS).

Tier 4 Study

For students who wish to come and study in the

UK.

Requiring degree-level students to

achieve English at level B2.17

Revised permissions to work.

Revised entitlements to sponsor

dependants to post-graduate level.

All education providers to have

achieved Highly Trusted Sponsor

status and meet new accreditation

arrangements.

Introduced time limits on study.

Introduced a genuine student test.

Tier 5 Work (Temporary Workers and Youth Mobility)

If an employer in the UK is willing to sponsor

the migrant, or if the migrant is a national of a

country that participates in the Youth Mobility

Scheme, they may be eligible to come and work

in the UK for a short period.

Extended to include Taiwan (from

January 2012), South Korea (fromJuly 2012), Hong Kong (from January

2014), and increased allocation of

places for Australia (from January

2014).

Restricted leave for Government

Authorised Exchange (GAE) work

experience schemes to 12 months.

Introducing clearer provision and

restricting leave to six months for

contractual service suppliers and

independent professionals working

under international agreements.

Restrictions on the right to bring

overseas domestic workers to the

UK.

Family Family

For family members of British citizens and

Introducing a new minimum income

threshold of 18,600 for sponsoring

15 This is the process that an employer must follow before employing a person who is not a

permanent resident of the UK, if the employer is first required to show that no resident worker could

be found to take the job.

16 NQF is National Qualifications Framework. Level 3 is roughly equivalent to A Level qualifications,Level 4 to Certificate of Higher Education, and Level 6 to a Bachelor degree.17

This level is as named by the Common European Framework of Reference for Languages.


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settled persons. the settlement in the UK of a

partner.

Abolishing immediate settlement for

migrant partners where a couple

have lived together overseas for four

or more years and requiring five

years probation, and extending pre-

settlement probation from two to

five years for all partners.

Requiring English language at B1

level for all applicants for settlement

from October 2013.

For adult/elderly dependants, closing

the route to in-country switching and

requiring all overseas applicants to

demonstrate that they require long-

term personal care that can only be

provided by a relative in the UK. Publishing a list of factors associated

with genuine/non-genuine

relationships, and tackling abuse of

the family route, including measures

to tackle sham marriages.

Restricting the full right of appeal for

family visitors.

Migration trends

The key source of data on migration flows is the Office for National Statistics (ONS)

Long-Term International Migration (LTIM) release. Derived from the International

Passenger Survey (IPS), LTIM measures net migration as the difference between

inflow and outflow, for the number of people who change their country of usual

residence for at least one yearincluding those within the EU and British citizens.

This accords with the standard international definition of migration.


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Figure 3.1: Long-term international migration into and out of the UK, all citizens,

19642012

Source: Office for National StatisticsLong-Term International Migration release

Figure 3.1 shows that net migration was low (below 100,000) for most of the 1990s

and the preceding decades. Indeed, there was negative net migration of between

50,000 and 100,000 per annum during the late 1960s, and net migration remainedlargely negative through to the early 1980s, after which it turned mainly positive.

Since 1998 net migration has remained high in historic terms, with an average of

210,000 between 2004 and 2012. In 2008, net migration dropped to 163,000

coinciding with the beginning of the economic recession. Although the following

years saw considerably lower economic growth than previously, net migration began

to rise back to 2004 peak levels by 2010, before falling to 177,000 in 2012.

Over the last two decades, there were two clear step changes in net migrationone

in 1998 and the other in 2004. The rise in net migration in 1998 corresponds with the

relaxation of UK immigration policy, and the sharp rise in 2004 is mainly attributable

to the accession to EU membership of the A8 states. Figure 3.2 below looks at all EU

citizens.

-100

0

100

200

300

400

500

600

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Thousands

Net migration Immigration Emigration

Net migration2012 = 177,000

2004 EU Accession

Introduction of the Points Based System

Primary Purpose Rule Abolished


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Figure 3.2: Long-term international migration into and out of the UK, EU citizens,

19912012

Source: Office for National StatisticsLong-Term International Migration release

LTIM data show that over 50 per cent of long-term migration inflows in 2012 were

from non-EU citizens,18

and between 2000 and 2009, non-EU migrants represented

60 per cent of the total inflow, compared with 22 per cent who came from the EU(the remaining 17% being UK citizens).

18In 2012, 31 per cent of long-term migration inflows came from EU citizens and 16 per cent from

British citizens.

-50

0

50

100

150

200

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Thousands

Net migration Immigration Emigration


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Figure 3.3: International Passenger Survey estimates of long-term international

migration into the UK, non-EU citizens, by main reason for migration, 19912012

Source: Office for National StatisticsInternational Passenger Survey

Figure 3.3 shows the IPS estimates of LTIM into the UK by non-EU citizens and main

reason for migration. In 2012 the largest group by main reason for migration were

students; around 59 per cent of non-EU long-term migrants came to the UK to study,19 per cent to work and 17 per cent to accompany/join someone. In comparison, in

2001 more non-EU citizens came to the UK to work (39%) than to study (27%). This

will have implications for the impact of migration on the labour market. The

substantial growth in international student numbers in the UK in the last decade has

been consistent with the growth in the global international student market;

however, the particularly rapid growth in student numbers after 2007 led to

concerns that there were significant levels of abuse of the student visa system

(Home Office, 2012; National Audit Office, 2012).

Analysis of IPS data shows that the period of the 200809 recession coincided with a

fall in emigration that was sharper than the fall in immigration; therefore there was a

small rise in net migration. This was partly reversed as the recession ended

immigration levels began to rise again but emigration did not, thus there was a

further steep rise in net migration. Around one-half of the rise in net migration could

be accounted for by falling British emigration as economic conditions led to fewer

British citizens looking for work abroad. The other significant contributor (both

during and after the recession) was the inflow of foreign citizens. Within this inflow,

the number of European arrivals peaked before the recession, then fell rapidly

during the recession, but began to grow again once the recession ended. The

proportion of European immigrants arriving for work purposes (around 20%) was

much greater than non-EU immigrants (under 10%) in the year ending December

0

50

100

150

200

250

300

350

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Thousands

Work related Formal study Accompany/Join Other No reason stated


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2012,19

with a much larger proportion coming to study. Overall, immigration for

work-related reasons fell by almost one-fifth during the recession (Simmons,

forthcoming).

Home Office Immigration Statistics include the number of visas issued, applicable

only to those subject to immigration controltherefore excluding EEA nationals.

Visa numbers are a measure of inflows, and the length of time a visa applicant

intends on staying in the UK may vary from months to years (or permanently). The

high-level trend, based on the number of entry clearance visas issued (excluding

visitors and transit), the impact of policy changes (for example, those in Table 3.1

above) and other factors, can be seen in Table 3.2.

Table 3.2: Entry clearance visas issued for main applicants, 200512

2005 2006 2007 2008 2009 2010 2011 2012

Tier 1

(Entrepreneurs,

Investors and

Exceptional

talent) and pre-

PBS equivalent

7,486 8,946 11,551 17,427 18,851 16,003 8,656 6,272

Annual change 19.5% 29.1% 50.9% 8.2% -15.1% -45.9% -27.5%

Tier 2 (Highly

skilled) and pre-

PBS equivalent

66,214 72,921 65,419 55,837 36,287 39,922 38,088 39,172

Annual change 10.1% -10.3% -14.6% -35.0% 10.0% -4.6% 2.8%

Tier 4 (Student)

and pre-PBS

equivalent

175,576 190,219 193,775 207,774 273,205 253,786 237,471 193,083

Annual change 8.3% 1.9% 7.2% 31.5% -7.1% -6.4% -18.7%

Tier 5

(Temporary

Worker and

Youth Mobility

Scheme) and

pre-PBSequivalent

64,651 53,260 45,121 40,998 36,318 36,539 36,627 36,926

Annual change -17.6% -15.3% -9.1% -11.4% 0.6% 0.2% 0.8%

Family 66,324 70,119 64,389 53,544 49,472 53,713 45,723 40,925

Annual change 5.7% -8.2% -16.8% -7.6% 8.6% -14.9% -10.5%

Source: Home Office

19

IPS inflows for all citizens and all reasons in year ending December 2012 was 462,000. During thesame period, around 95,000 EU citizens and 44,000 non-EU citizens came to the UK for work-related

reasons.


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Tier 1 visas issued declined by almost one-half between 2010 and 2011. This was a

result of the specific policy changes to remove unsponsored general migration from

this route, and convert the Tier into a route only for investors, entrepreneurs and

the exceptionally talented. For the broader Tier 2 skilled work route, lower numbers

also reflect the dampening of demand due to the economic conditions. The largest

increase in visa numbers was for Tier 4 visas up to 2010, since when they have

reduced primarily as a result of the Governments crackdown on bogus colleges,

affecting the non-higher education sectors rather than the universities. Family visas

issued have fallen in every year but one from 2007 to 2012, in part due to stricter

government controls, but also due to a reduction in the inflow of non-EU migrants.

Home Office analysis has shown the relative changes in employment levels, for UK

nationals and foreign nationals (Home Office, 2013 and Home Office, 2014). The

analysis shows that UK nationals accounted for 68 per cent of the growth in

employment between Q1 2000 and Q1 2004, prior to the main EU accession.

Following the 2004 accession, from 2005 until 2008, growth in employment for UKnationals slowed, whilst employment growth for foreign nationals remained strong

(Home Office, 2013). Over the period from Q1 2004 to Q1 2008 (just before the

onset of recession), foreign nationals accounted for 78 per cent of the total rise in

employment (Home Office, 2014). The data then show that with the recession,

between 2008 and 2010, there was low and negative employment growth for both

UK and foreign nationals, but over most of the latest period, up to the end of

Q3 2013, the majority of employment growth (92 per cent) was accounted for by UK

nationals.

A range of factors affect the distribution of changes in levels of employmentbetween UK and non-UK nationals, including demographic factors such as the size of

the working-age population, wider policy factors (for example, design of the benefits

system), and economic factors affecting labour supply, as well as the level of net

migration and immigration policy.

The next chapter builds on this picture by further exploring the outcomes in the UK

labour market for natives and migrants.


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4. Outcomes in the UK labour market for natives and migrants

Summary

The large increase in net migration that began in the late 1990s took placeduring a strong period of sustained economic growth, which came to an end with

the 2008 recession.

Over the early part of the period of sustained positive net migration, labour

market outcomes improved for the UK (native born) populationemployment

rates increased steadily up to 2005 and then remained at a relatively high level

until the 2008 recession.

Employment rates for the UK (native born) population have been higher than for

non-European Economic Area (EEA20

) migrants and for the UK (foreign born)

population, but in recent years have been lower than for EEA migrants, as the

employment rates for this group changed following the 2004 enlargement of theEU (the A8

21accession).

Inactivity rates for non-EEA and EEA migrants have been falling for almost 20

years.

Economic context

The rapid increase in immigration described in the previous chapter, beginning in

the late 1990s, took place during a period of sustained economic growth in the UK.Between 1992 and 2007, annual growth in gross domestic product (GDP) averaged

just over 3 per cent per annum. There was then a substantial recession in 2008 and

2009, with growth resuming in 2010, but remaining low in 2011 and 2012. This is

highlighted in Figure 4.1, which also shows employment rates for the whole labour

market.

20EEA = European Economic Area. The EEA Includes Member States of the EU, plus Iceland,


as Swiss nationals have free movement rights within the EU. 21

A8 countries are the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and

Slovenia.


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Figure 4.1: Annual UK gross domestic product growth rates and employment rates,

19752012

Source: Office for National StatisticsUK National Accounts Time Series, Annual

GDP growth at constant prices, (series IHYP) and ONS Summary of headline

employment rates, UK, all seasonally adjusted.

Population trends

The Labour Force Survey (LFS), whilst not designed to measure changes in migration,still provides a rich source of data on working patterns of natives and immigrants.

The LFS allows migrants to be identified by both their country of birth and their

nationality. Box 4.1 (below) explains the definitions for the different migrant

groupings used in the labour market analysis presented in this chapter.


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Box 4.1Definitions of migrant groups

This analysis of labour market outcomes divides the UK population into four main

groups, according to their reported nationality andcountry of birth.

1. UK (native born)UK nationals born in the UK.

2. UK (foreign born)UK nationals born outside the UK. This group includes settled

migrants who have acquired UK citizenship, as well as individuals born abroad

with parents of UK nationality, who have subsequently returned to the UK.

3. EEA migrantsindividuals not born in the UK, but with either EEA nationality or

born in the EEA (or both).

4. Non-EEA migrantsindividuals born outside the EEA and with non-EEA

nationality.

Note that in many empirical studies of migration, country of birth alone has been used to

define migrants. In such studies, groups 2, 3 and 4 above would typically be defined as

migrants. However, in practice many of those born abroad will have arrived in the UK

some time ago22

and have since obtained British citizenship and so enjoy the same

residence rights and access to the labour market as UK born individuals.23

Differences in

employment rates and other factors for those residents who were born abroad will

largely reflect long-term integration outcomes. In order to understand the relationship

between more recent migration and the labour market it is necessary to consider

migrants according to their current nationality.

LFS data on the UKs migrant population tells a similar story to the official net

migration statistics presented in the previous chapter, although there can bedifferences over shorter periods and the LFS is not designed specifically to measure

international migration, unlike the International Passenger Survey (IPS)-based net

migration statistics. The non-EEA migrant population began to rise in the late 1990s,

followed later by an increase in the EEA migrant population after the enlargement of

the EU in 2004.24

Figure 4.2 shows the change in population levels for each group of

interest, using LFS quarterly data.

22Half of non-UK born residents (50 per cent, 3.7 million) reported having last come to live in the UK

before 2001.2011 Census of England and Wales. Available at:

http://www.ons.gov.uk/ons/dcp171776_310441.pdf 23

Of those usual residents born outside the UK 46 per cent (3.4 million) had a UK passport.2011

Census of England and Wales. Available at:http://www.ons.gov.uk/ons/dcp171776_310441.pdf24This analysis does not consider in detail the breakdown of the migrant population compared with

the UK native population in terms of occupation or skill level. However, it is important to note that

there are some significant differences. For example, Rienzo (2012) states that the LFS shows that

migrant workers are, on average, slightly younger than native workers. Nearly 39 per cent of migrant

workers were aged between 25 and 35 years old in 2011, while less than 24 per cent of UK bornworkers were in that age group.
http://www.ons.gov.uk/ons/dcp171776_310441.pdfhttp://www.ons.gov.uk/ons/dcp171776_310441.pdfhttp://www.ons.gov.uk/ons/dcp171776_310441.pdfhttp://www.ons.gov.uk/ons/dcp171776_310441.pdfhttp://www.ons.gov.uk/ons/dcp171776_310441.pdfhttp://www.ons.gov.uk/ons/dcp171776_310441.pdfhttp://www.ons.gov.uk/ons/dcp171776_310441.pdf


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Figure 4.2: Population aged 16 or over, by population group, 19952012

Source: Labour Force Survey

Employment

Figures 4.3a and 4.3b shows employment trends for these groups over the sameperiod.

0

10

20

30

40

50

60

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Millions

UK (native born) UK (foreign born) Non-EEA migrants EEA migrants


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Figure 4.3a: Employment levels, people aged 16 or over, by population group,

19952012


Figure 4.3b: Employment levels, people aged 16 or over, by population group

(zoomed), 19952012


It is clear from Figures 4.3a and 4.3b that for the ten years after 1995, there was a

period of growth in employment levels for the UK (native born) population, andalthough the growth ended in the middle of the last decade, employment levels

remained relatively high until the onset of the recession in 2008. Meanwhile, the

0

5

10

15

20

25

30

35

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Millions


23.5

24.5

25.5

26.5

27.5

28.5

29.5

30.5

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Millions



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changes in immigration were reflected in the labour marketemployment levels

increased significantly amongst migrant groupsfirst for non-EEA migrants in the

late 1990s, and subsequently for EEA migrants following the enlargement of the EU

in 2004. However, with the weakening of the economy in 2008, employment levels

fell for most groups, although after falling initially employment of the UK (foreign

born) and EEA migrants continued to rise.

Table 4.1: Numbers in employment, by population group, Q4 1996Q4 2012

Employment levels (people aged 16 or over), millions

UK (native

born)

UK (foreign

born)

EEA

migrant

Non-EEA

migrant

Q4 1996 24.40 1.01 0.42 0.43

Q4 2000 25.34 1.06 0.54 0.66

Q4 2004 25.86 1.22 0.65 0.93

Q4 2008 25.57 1.47 1.11 1.24Q4 2012 25.50 1.70 1.45 1.16

Change since Q4 1996 +1.10 +0.69 +1.03 +0.73



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Box 4.2Labour market definitions

The labour market comprises all those over the age of 16 up to the age of 64, and

also those over 64 if they are either working or looking for work. In the labour

market statistics individuals are categorised according to whether they are

employed, unemployed or economically inactive in a particular time period

between time periods individuals may move between these categories.

Figure 4.4: Flows of people in the labour market, Q1Q4 2012

Estimates are of gross flows between each state in 2012. Stocks quoted in parentheses are from March 2013. Note that net

flows into each state do not necessarily correspond to net annual changes. The size of the labour market changes due to

people entering/leaving the labour market.

Source: Office for National StatisticsLabour Market Flows, experimental statistics

and ONS Monthly Labour Market Statistics

The analysis in this chapter divides individuals in the labour market into three

groups, according to their labour market status:

1. employedincludes employees, self-employed, unpaid family workers and

people on government-supported training programmes.

2. unemployedincludes those who are not employed but are actively

seeking work; and

3. inactivepeople who are not employment and not actively seeking work.

Labour market outcomes for these groups are presented in terms of either levels or

rates. Levels are the number of people in a certain labour market category. Rates

represent the proportion of people in labour market category as a percentage of a

total. The way in which these rates are calculated is outlined below:

Employment rate [1664]= __working-age employed_

working-age population

Unemployment rate [16+] = unemployed______[employed + unemployed]


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Inactivity rate [1664]= working-age inactive___

Working-age population

For employment and inactivity rates, the total used here is the full working-age

population (people aged 1664).25

Therefore an employment rate of 70 per cent

indicates that 70 per cent of the working-age population is in employment.

Unemployment rates are calculated slightly differentlyas the proportion of the

active labour force (rather than the entire working-age population) that is

unemployed.

Figure 4.5 shows trends in the employment ratesacross population groups from

1995 to 2012. For much of the early part of the period of substantial immigration

beginning in the late 1990s, employment rates rose for all groups. However,

employment rates for the UK (native born) and UK (foreign born) groups rose more

slowly than those for foreign nationals.

Figure 4.5: Employment rates, people aged 1664, by population group, 19952012


Employment rates for the UK (native born) population remain substantially higher

than for non-EEA migrants and the UK (foreign born) population. Many non-EEA

migrants come to the UK to accompany another migrant or as a family member of a

UK national or settled person, and for some migrant groups employment rates have

been relatively low.26

However, the employment rates for the UK (native born)

group have been surpassed in recent years by high employment rates for EEA

25The number of migrants in employment aged 65 or over is relatively small roughly 30,000 in Q4

2012.26See Table 8 of the monthly ONS Labour Market Statisticsbulletin for a comparison of employment

rates across different migrant nationality subgroups. Available at:

http://www.ons.gov.uk/ons/dcp171778_332467.pdf for the November 2013 release.

45%

50%

55%

60%

65%

70%

75%

80%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012



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migrantsa large proportion of EEA migration has been work-related since the

enlargement of the EU in 2004.

Table 4.2: Employment rates, by population group, Q4 2012

Population group Employment rates (people aged 1664),

Q4 2012

UK (native born) 72.4%

UK (foreign born) 67.4%

EEA migrant 77.2%

Non-EEA migrant 59.7%


Figure 4.5 also reveals a structural change in the labour outcomes of migrants. Over

the period that the numbers of migrants were increasing considerably (see Figure

4.2) theproportionof migrants in employment was also increasing, for both EEA and

non-EEA migrants. This may reflect both the impact of EU enlargement, as A8

migrants were much more likely to be coming primarily to work compared with

previous waves of migrants, but also the long period of economic growth up to the

2008 recession.

Inactivity

Trends in inactivity rates over the same period are seen in Figure 4.6 below:

Figure 4.6: Inactivity rates, people aged 1664, by population group, 19952012


10%

15%

20%

25%

30%

35%

40%

45%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012



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While the most striking decline in inactivity was amongst EEA migrants (again,

reflecting the changed composition of that group following the 2004 enlargement of

the EU), inactivity rates amongst non-EEA migrants were also declining appreciably

over the period up to 2006. Inactivity rates amongst UK nationals (both native born

and foreign born) have, in contrast, remained largely flat over the last two decades.

Given the substantial increase in inflows over this period, the decrease in inactivity

rates amongst migrant groups is likely to be due to a higher proportion of the new

migrants (particularly those from the new accession states) coming to the UK

specifically to work. It may also be due in part to increased participation in the

labour market by migrants already in the UK.

Unemployment

Turning now to unemployment rates, Figure 4.7 shows that whilst there was a slight

reduction in the unemployment rates of the UK (native born) population from 1995

to 2005, there were larger decreases amongst the migrant groups, albeit these all

started off from worse positions. Unemployment rates increased in all the groups in

response to the 2008/09 recession, with the unemployment rate for EEA migrants

remaining below that of the UK (native born) population.

Figure 4.7: Unemployment rates, people aged 16 or over, by population group,

19952012


0%

5%

10%

15%

20%

25%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012



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5. Methodological issues

Summary

The ability to measure accurately the impacts of migration depends crucially onboth the methodological approach chosen and the availability of robust and

timely data.

Empirical studies of the impact of migration rely on imperfect data, and their

conclusions will therefore be open to debate.

The International Passenger Survey (IPS) is still the best available measure of

migration trends but cannot identify specific labour market impacts.

Although the Labour Force Survey (LFS) has some significant limitations, we

consider it to be the most complete data source for measuring the impacts of

migration on the UK labour market.

Other data sources, such as National Insurance Number (NINo) registrationshave some advantages over the LFS, but also significant weaknesses that limit

their usefulness. Where possible, results using different data sources should be

triangulated to provide as full a picture as possible.

There are two main competing empirical methodologiesspatial correlation and

skill-cell correlation. Each attempts to isolate the impact of migration (stripping

out other factors) on a certain region (spatial) or skill-group (skill-cell). Both have

weaknesses but offer complementary insights

While economic theory provides a starting point for considering the impact ofmigration, in reality, theory alone is insufficient and the effect of migration needs to

be tested with real-world data and evidence. In recent decades, empirical

economists have developed techniques to assess the impact of migration on native

workers. However, the impacts are difficult to measure and each approach has

particular strengths and weaknesses. Some of the main methodological challenges

faced in this area are outlined below.

Data

Whilst the best measure of long-term migrationflowsto and from the UK is the IPS,

the main source used in economic research is the LFS, because it collects data on

migrant stocksin the UK and their labour market characteristics. Changes in LFS

stocks are not easily comparable with IPS net flows, and there are differences in

coverage and sample resulting in significant variation in the short term. Although

necessary to investigate labour market outcomes, the choice of the LFS as a method

for analysing migration flowslike other data setsdoes involve some significant

weaknesses.


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Figure 5.1: Comparison of National Insurance Number gross inflows, International

Passenger Survey gross and net inflows, and Labour Force Survey net changes in

migrant stocks, 2002/032010/11

Source: Department for Work and PensionsNINos; Office for National Statistics

International Passenger Survey, Labour Force Survey

The LFS is a sample survey and therefore the estimates derived from it will be

subject to some statistical variability, particularly when disaggregated, for example,

to regional level or across migrant types. Studies often need to pool multiple

quarters of data, and spatial analysis is only robust at the broad regional level rather

than at the more local level. This could mean that analysis using the LFS may

overlook local labour market impacts that may to some extent cancel each other out

at the broader regional level. However, the appropriate level of regional aggregation

for analysis of the impacts of migration is an active area of debate, as we discuss

further in the following chapter.

A further issue with the LFS is that it does not cover communal establishments and is

likely to under-sample from the migrant population. In addition, until recently (2008)

the LFS did not include short-term migrants as it excluded individuals who have been

resident in the UK for less than six months. However, in principle that should bring it

slightly closer to the IPS-based long-term international migration measure, which

looks at persons who have changed their normal place of residence with anintention to remain for 12 months or more (that is, the standard UN definition of

migration).

In some studies, administrative data on NINo allocations to overseas nationals and

Worker Registration Scheme (WRS) registrations have also been used as a proxy for

migrant inflows. These administrative data sources are free from the sample size

issues faced by a sample survey, such as the LFS, meaning that analysis can be done

at the local authority level rather than at the much broader regional level. However,

they include many short-term temporary workers, do not account for internal

migration once in the UK, and as a gross measure of inflows, do not de-registerdeparting migrants and so are unable to establish net impacts (which leads to


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problems if the number of de-registrations is actually large). Administrative sources

also tend to lack additional information on important observable labour market

characteristics, such as skill level, occupations or wages, and which need to be

measured through surveys. Individual information on migrant characteristics allows

more detailed analysis, for example, considering separately the impact of high-

skilled migrants on the labour market compared with low-skilled migrants.

However, recent improvements to administrative data sources, such as linking

across data sets, should allow richer analysis on administrative data in the future

and reduce some of the drawbacks highlighted above. Furthermore, longitudinal

data setsthe regular collection of data over time of the same group of subjects

also present new sources worth considering when conducting analysis of the

impacts of migration on the labour market. Examples include the Department for

Work and Pensions (DWPs) Work and Pensions Longitudinal Survey and the

Lifetime Labour Market Database.

The differences between these data sources are substantial.27It is possible,therefore, that studies that differ in their choice of data may reach different

conclusions as a result. Most studies of labour market impacts have used the LFS.

Despite some of the weaknesses in the LFS, it allows analysis to include a

consideration of individual migrant characteristics and to examine net changes in

migrant stocks rather than gross flows. Our assessment is that the LFS is currently

the most complete data source for examining the impacts of migration on the UK

labour market. However, the other data sources do have some strengths and any

review of the evidence should seek to triangulate results from all the available data

sources in order to draw the best conclusions. Recent improvements to

administrative data sources may present further opportunities for research in thisarea.

Migrant definitions

The definition of a migrant is in itself a difficult issue for studies examining the

labour market impact of migration. Studies using the LFS have tended to use country

of birthmigrants are defined as those born outside the UK. The focus of much

migration research until recently was on migrant integration and this has tended to

lead researchers to favour a country of birth variable, partly because it is often the

only one available but also because it may reflect long-term patterns of migration.However, this is not the most appropriate metric for analyses concerned with

migration policy. Other studies using administrative data sources (such as NINos)

may use nationalityor country of birth to define migrants, depending on what is

collected in those systems.

There are substantial differences in the migrant populations defined by these

approaches. For example, defining migrants by those born outside the UK includes

both people born abroad to British parents, as well as long-established migrants who

have since acquired British citizenship to become British nationals. The 2011 Census

found that around one-half (46%) of those normal residents of England and Wales

27See Annex 3 for a full comparison of these data sources.


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who were born abroad had British citizenship by the time of the Census (Office for

National Statistics, 2013). Using a definition based on a persons country of birth will

therefore include individuals who came to the UK as migrants but are now UK

citizens.

To illustrate the scale of the differences produced by these competing definitions,

the ONS labour market statistics28show that defined by country of birth there are

4.3 million migrants in employment in the UK, whereas defined by nationality there

are only 2.6 million. Moreover, Figure 5.2 below shows changes in employment

levels for UK natives and migrants at the national level, using both definitions. Using

the nationality definition, only around 13 per cent of employment growth over the

past year has been amongst migrants. However, using the definition of people

according to their country of birth, approximately 35 per cent of the employment

increase over the past year (2012) was amongst those who were born abroad.

However, if 46 per cent of residents born abroad are now British citizens an analysis

based on this variable will, in effect, include many British citizens in its definition of a

migrant.

Figure 5.2: Changes in levels of employment, by nationality and country of birth,

not seasonally adjusted, October to December 2011October to December 2012

Source: Office for National StatisticsLabour Market Statistics, April 2013

Given the differences between these groups, it is clear that where studies that vary

in their definition of a migrant produce different results, some of the discrepancy

may be due to how migrants have been defined in their analysis.

28Labour Market Statistics, ONS, April 2013
http://www.ons.gov.uk/ons/dcp171778_305051.pdfhttp://www.ons.gov.uk/ons/dcp171778_305051.pdfhttp://www.ons.gov.uk/ons/dcp171778_305051.pdfhttp://www.ons.gov.uk/ons/resources/migrantworkerschart_tcm77-303122.phttp://www.ons.gov.uk/ons/dcp171778_305051.pdf


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